Sajid Javid Comments Stoke Brexit Fears

GBP/USD retreated further in early trading on Monday, falling below the key psychological level of 1.30. The move comes after Friday’s disappointing UK retail sales report and comments from Chancellor of the Exchequer Sajid Javid in a weekend interview.

The Office for National Statistics (ONS) reported on Friday that December UK retail sales fell by 0.6% versus the prior month, marking a record fifth consecutive month of no growth. The figure widely missed analyst expectations of a 0.6% increase and sterling reversed sharply on the news.

UK Chancellor of the Exchequer Sajid Javid warned there would be no alignment with EU regulations after Brexit. In an interview with the Financial Times, Javid stated: “There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union – and we will do this by the end of the year.” Javid also admitted that not all businesses would benefit from Brexit and the comments fueled fears over higher food prices.

Earlier this month, President of the European Commission Ursula von der Leyen warned that it would be “impossible” to reach a comprehensive post-Brexit trade deal by the end of 2020. She also made clear that the more divergence the UK wanted, the less accommodative the future trading relationship with the EU will be.

Investors now turn their attention to Friday’s UK PMI data for clues on the health of the UK economy. Weaker than expected manufacturing data will pressure sterling and add to the case for a Bank of England (BOE) rate cut in January. BOE governor Mark Carney stated earlier in the month that policy makers were prepared to take action if economic weakness persists.The CME BOE Watch Tool currently shows a 72% chance of a quarter point rate cut in January. The current target rate stands at 0.75%.

Looking at the GBP/USD daily chart we can see that price is trading within a pennant pattern but threatening a possible breakout to the downside. The 200 period simple average, currently at 1.2687, represents potential support and a major line in the sand between the bulls and bears.

Scandinavian Capital Markets Review